With a fixed-rate mortgage, the interest rate is locked at closing for the full term, most often 30 years and sometimes 15 or 20. Because the rate never moves, the principal and interest part of the payment is identical on payment number 1 and payment number 360. Lenders qualify you on that same payment, so the principal and interest on your approval is what you pay for the life of the loan.
How each program offers it
FHA, VA and Conventional loans all come in 30-year and 15-year fixed terms, along with a few lengths in between. USDA guaranteed loans are written as 30-year fixed loans only, so every USDA buyer gets a principal and interest payment that never changes. The term matters for qualifying: stretching the same loan over 30 years lowers the monthly payment, which keeps the debt-to-income ratio inside FHA's 56.9% total limit with an automated approval or Conventional's 50%.
Where each payment goes
A $300,000 loan at a 5.75% rate on a 30-year fixed costs $1,750.72 a month in principal and interest. In the first month, interest is $300,000 × 5.75% ÷ 12, or $1,437.50, and the remaining $313.22 pays down the balance. Each month after that, a little less goes to interest and a little more to principal, while the payment itself stays at $1,750.72.
| Point in the loan | Payments made | Balance left |
|---|---|---|
| Start | 0 | $300,000.00 |
| 5 years | 60 | $278,286.56 |
| 10 years | 120 | $249,360.45 |
| 30 years | 360 | $0 |
By year 10 the owner has paid the balance down by $50,639.55, on top of any rise in the home's value.
What can still change on a fixed loan
Property taxes and homeowners insurance usually ride along in the payment through an escrow account, and those bills are set by the county and the insurer each year. Say taxes run $225 a month and insurance $250, for a total payment of $2,225.72. If the insurance renews $40 a month higher, the payment becomes $2,265.72, and the $1,750.72 of principal and interest stays exactly where it was. On a primary residence in Florida, the homestead exemption trims the taxable value, and the Save Our Homes rule limits yearly growth in the assessed value to 3% or the change in the consumer price index, whichever is lower.
Rates can also fall after you buy. A fixed rate protects you when they rise, and when they drop, an FHA Streamline Refinance, a VA IRRRL or a Conventional refinance can bring the payment down.
The mortgage payment calculator breaks your own price into the fixed principal and interest and the escrow pieces that can move. Call AAA Capital Funding at 888-601-8344 to compare a 30-year and a 15-year fixed on the home you have your eye on.